The Coming Renaissance of Value Stocks
WHITNEY TILSON FOUNDER OF EMPIRE FINANCIAL RESEARCH
B ig investing trends tend to move in cycles, often a decade or longer. Wise, experienced investors know this and take advantage. My investing career began in the late 1990s, at the tail end of a 17-year bull market that ended with one of the great melt-ups of all time – the Internet bubble. I've never seen anything like it, before or since. It was hard to be a value investor back then. When I launched my first hedge fund on January 1, 1999, I made legendary investor Warren Buffett's Berkshire Hathaway my largest position. The stock was then trading just above $60,000 per A-class share. I continued adding to the position as my fund grew, at prices that rose to more than $70,000 by midyear. At that point, tech stocks were doing well, with the Nasdaq up 22% for the year... But other stocks were also doing fine: the S&P 500 Index was up 12% and the Dow Jones Industrial Average had risen 20%. But then investors truly lost their minds and drove tech – especially Internet stocks – through the roof. The Nasdaq rose 54% in the fourth quarter alone and another 15%
in the first two months of 2000, ultimately peaking on March 10. As investors chased performance, money poured out of "old economy" stocks and funds – so much so that, over those five months, the S&P rose only 7% and the Dow was actually down almost 2%. Berkshire, a prototypical "old economy" stock run by the most famous value investor in the world, declined seemingly every day. It sunk below $70,000, then $60,000, then $50,000, and finally approached $40,000 in early March. It was a sickening slide for my largest position. Day after day, the market told me I was wrong. But I knew I wasn't, so I kept buying the stock all the way down, finally making it a massive 30% position on the very day it bottomed – and, not coincidentally, the day the Nasdaq peaked (though I didn't know it at the time). This story, of course, has a happy ending... Berkshire's stock rose by more than 50% within a few months and is up more than 700% since then. March 10, 2000, marked not only the bottom for Berkshire, but also
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December 2019
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